California's Fiscal Crisis: The Legacy of Proposition 13

In his June 27, 2009 TIME magazine article California's Fiscal Crisis: The Legacy of Proposition 13, Kevin O'Leary argues California's current fiscal crisis is directly attributable to the June 6, 1978 passage of the "People's Initiative to Limit Property Taxation," better known as Proposition 13, which was a ballot initiative to amend California´s state constitution:

The financial crisis in California grew worse this week as State Controller John Chiang warned that if legislators and Governor Arnold Schwarzenegger fail to come up with a budget-balancing package, he would begin paying California's bills with IOUs on July 2. The last time the state did this was during the Great Depression.

What has brought California to such a perilous state? How did its government become so wildly dysfunctional? One obvious cause is the deep recession that has caused tax revenues to plunge for all states. But California's woes have a set of deeper reasons: direct democracy run amok, timid governors, partisan gridlock and a flawed constitution all contribute to budget chaos and people in pain. And at the root of California's misery lies Proposition 13, the antitax measure that ignited the Reagan Revolution and the conservative era. In Washington, the Reagan-Bush era is over. But in California, the conservative legacy lives on. (Read TIME's report: Can the U.S. Afford to Let California Fail?)

Before Prop 13, in the 1950s and '60s, California was a liberal showcase. Governors Earl Warren and Pat Brown responded to the population growth of the postwar boom with a massive program of public infrastructure — the nation's finest public college system, the freeway system and the state aqueduct that carries water from the well-watered north to the parched south. When Ronald Reagan was governor he actually raised taxes. Then Proposition 13 shot the tires out of Pat Brown's liberal state. Liberal legislative leaders such as Willie Brown and John Burton jerry-rigged repairs and kept the damaged vehicle running for 30 years. Now Republican Arnold Schwarzenegger says there is no choice but to complete the demolition by slashing essential services. (TIME's Joel Stein weighs in on California's state of insanity)

Proposition 13 was the brainchild of the late Howard Jarvis. The antitax crusader was a policy genius not unlike Franklin D. Roosevelt. Both shared an affinity for designing deep structural change that, once embedded in the political system, is nearly impossible to alter without a massive change of heart by voters. Social Security is the lasting legacy of the New Deal era because F.D.R. understood that workers who contribute payroll-tax deductions from their paychecks would not want politicians tinkering with their retirement dollars. Conservatives have mounted assaults on Social Security through the years but to no avail.

Jarvis created a similarly impregnable institution. When he rode the wave of anger over skyrocketing property-tax assessments to pass Proposition 13 in 1978, he included a two-thirds vote requirement for the passage of any new taxes in California — an insurmountable obstacle built on populist allergy to any kind of new levy. Beholden to a tax-averse electorate, the state's liberals and moderates have attempted to live with Proposition 13 while continuing to provide the state services Californians expect — freeways, higher education, locking up felons, assisting needy families and, very importantly, essential funding to local government and school districts that vanished after the antitax measure passed.

Now, however, that balancing act no longer seems possible. In the state's current fiscal crisis, California's public schools stand to lose $5.3 billion on top of $7.4 billion in cuts last year. Superintendents and school boards foresee teacher layoffs, increased class sizes, the loss of computer labs and libraries and, in some districts, insolvency. Superintendent Ramon Cortines says the Los Angeles Unified School District will lay off more than 2,500 teachers.

"If not for the county [welfare program], lots of people would be out on the streets and I'd be one of them with my two kids," says Cinnamon McDaniel. Petite and well dressed, McDaniel is hardly the Reagan-stereotype welfare mom of yore. The 26-year-old African American mother of two was employed until a year ago when her doctor ordered her to stop working because of complications with her second pregnancy. A high school graduate and a preschool teacher's aide for six years, she is working toward a nursing degree. Following a divorce, she now receives a welfare check for $623 as well as food stamps and the state's health coverage for low-income families. "Last year I was able to work and pay my own bills. I'd like to see if Gov. Schwarzenegger could cut it on $600 a month."

South of Los Angeles at California State University, Fullerton, Nicole Muth, 22, has just finished her junior year with straight A's. Muth grew up in Modesto with "lots of love but no money." Raised by her aunt and uncle, she receives a Cal Grant of $4,500 a year. "It definitely helps," says Muth, who credits the grant with allowing her to focus on her studies. As part of his proposed budget cuts, however, Schwarzenegger says Cal Grants should be phased out and that money promised to the incoming college class eliminated. "I appreciate the grant very much and I'm concerned about students coming after me not having the opportunities I've had," says Muth. "I'm really sad to see our state in this economic crisis. It's bewildering." Muth is not alone.

The governor has addressed the need for shrinking the state, saying, "We have to go and make certain cuts in health care. We have to make certain cuts in education, in higher education, in all these various different programs, in prisons, law enforcement and so on." But Anthony Wright, executive director of Health Access California, a nonprofit advocacy group, says, "These are no longer cuts. These are amputations, and the question is, Which limb are we cutting off today?"